THE SHADOW PRICE OF SUNSHINE

This paper explains the difference between in-state tuition and out-of-state tuition across public universities in the United States. The principal result is that schools will price-discriminate (charge out-of-state students relatively higher tuition) if their location has desirable environmental attributes. Using weather conditions as a proxy of these complements, the more desirable the weather the greater the out-of-state demand and the less elastic that demand. This allows schools, ceteris paribus, to charge relatively higher tuition to out-of-state students.